XOM has been one of the poorest performers among the world’s largest oil producers, and the stock has trailed rival Chevron (CVX[3]) by a significant margin this year. XOM has only managed to produce a 3% gain so far in 2013, compared to 11% for CVX and 23% for the S&P 500.

And its latest earnings release isn’t going to help that performance.

It seems that the refining demons have struck once again, sending profits downwards. While XOM is still making money, the refining profits and the high cost of drilling aren’t instilling any confidence in the firm.

For XOM shareholders, the question remains just how much more they can take.

Breaking Down the XOM Numbers

While investors were expecting another quarterly drop in profits from XOM, they also got a pretty awful year-over-year earnings drop. Earnings dropped 18% year-over-year, following the company’s lowest profit in more than three years. However, that low profit was still a hefty $6.86 billion dollars in just three months.

Overall, profits[4] at XOM fell to just $7.87 billion or $1.79 per share. That’s down from $9.57 billion or $2.09 per share just a year earlier. Revenue was also down 2% to $112.37 billion for the quarter. The oil stock did managed to beat analyst estimates, however. According to FactSet, analysts had been expecting Exxon to report adjusted income of $1.77 per share and revenue of $107.39 billion.

The bad news is that several of the same factors that have plagued the oil stock in the past few quarters have reared their ugly heads again.

XOM, like many of the integrated oil stocks, has been fighting an uphill battle against falling production and rising drilling costs. Legacy wells continue to dry up, and the cost of tapping new sources of supply via fracking and deepwater drilling is hurting margins at a variety of firms.

Despite its immense size, XOM is no different on these fronts. Since March, output from Exxon’s wells has declined by 1%. That’s a huge long-term issue and has resulted in XOM charging heading first into a variety of projects — in faraway lands like Russia and Papua New Guinea — to find new sources of stable supplies.

In the shorter term, refining continues to chip away at XOM’s profits. Like last quarter,[5] lower crack spreads have considerably dented the oil stock’s earnings.

For the quarter, XOM saw its refining earnings drop 43% to just $17.54 per barrel during the three-month period as the spread between U.S. benchmark West Texas Intermediate[6] (WTI) and international standard Brent narrowed. According to data provided by Bloomberg, this was the first time since 2010 that the oil stock saw refining margins dip below $20 per barrel.

These poor results from XOM’s downstream operations hindered any positive results from the production side.

The Bottom Line for XOM

The last few years at XOM have been about trying to grow production and reduce high drilling costs. As the latest earnings report shows, XOM has yet to overcome those challenges. The lower year-over-year profit versus is very troubling; XOM needs to sell more oil at higher prices.

As for the continued downward pressure from refining operations, Exxon has some work to do. Given that so many of its rivals are getting “lean & mean,”[7] spinning off these operations as separate firms and seeing great stock performance, XOM may finally be pressured to do the same. If it does, maybe we would finally see the company’s stock outperform.

Until then, earnings like this are keeping XOM at the back of the pack.

As of this writing, Aaron Levitt did not hold a position in any of the aforementioned securities.